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Patent Infringement Cases Increase in Oil and Gas Business

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By Nushin Huq

March 4 — As the price
of oil has fallen, an increasing number of intellectual property
suits, especially patent infringement complaints, have been filed
among oil field service and equipment companies.

Morico's group tracks which cases are filed every
day and, “You'd struggle to find this many cases in the previous 18
months,” he said.

(Click images to enlarge.)

“What's significant is that these are competitor
cases,” Morico said. “These are industry leaders suing each other.
Those are the serious patent infringement cases.”

Since a patent is a legal monopoly, Morico added,
these cases are about market share. With a shrinking market—a
result of low oil prices—it's a matter of companies fighting one
other to get or keep market share.

“You're talking about the number one and number
three players in energy services suing each other,” Morico
said.

“It's a natural evolution of what I would to expect
to see with oil prices,” Tom Walsh, a principal in the Dallas
office of Fish & Richardson LLP, told Bloomberg BNA. “This is
an area where you have a lot of competition, you have people that
have patent portfolios, and as the projects have gotten less
available, these companies are using their patents as an asset to
attempt [to] offset some of the economic losses they're seeing
because of the price of oil.”

Patents also serve as an important marketing tool
when companies are competing for a smaller pool of available
projects, Walsh said. “They can say, ‘Here look, we have this
patented technology, and we can do something no one else can do’,”
he said.

The rise in patent cases in this sector can also be
linked to the tremendous increase in the number of patents issued
in the energy industry—especially for hydraulic fracturing. Walsh
pointed to a paper published in 2014 that stated the surge in
patents awarded to companies in this field almost doubled over a
decade.

“We've had an increase in the number of patent cases
we've been asked to handle, either by patent owners or someone
accused of patent infringement,” Lisa Meyerhoff, a partner at Baker
& McKenzie LLP, told Bloomberg BNA.

“That definitely includes companies in the oil field
equipment or service provider part of the industry,” she said.
While there's been a steady stream of troll cases, the bulk of
cases Meyerhoff sees are from companies in the oil-and-gas
sector.

“I have seen an increase from last year into this
year,” Meyerhoff said. “A pretty big jump, especially in Texas.
Which isn't surprising since there's so many oil companies and so
many oil field services companies located in Texas.”

A company's patent can be a large line item asset,
and protecting it can be especially important if a company wants to
be in a position to sell a division or even the company itself
three or four years from now, Meyerhoff said. Sometimes, it's a
matter of priorities.

“Companies say, ‘We only have ‘x’ amount of money to
spend in a downturn, you know, when the price of oil is really low,
we're going to hold off on other types of business litigation',”
Meyerhoff said. “‘But we're going forth with patent infringement
lawsuits, to protect our assets, to protect our market share’,
etc.”

Numbers

It's difficult to calculate the number of patent
infringement cases in support of anecdotal evidence that the number
of suits is increasing for upstream companies. Meyerhoff said even
if an energy company is named in a patent infringement suit, that
doesn't mean it is related to energy.

“You would have to literally look at what the patent
subject matter or technology was to be able to say that these were
all energy-related or not,” Meyerhoff said.

An analysis of patent infringement cases by
Bloomberg BNA using the keywords “oil and gas” showed the number of
suits slowly rising since the financial crisis of 2008. However,
with the sharp drop in oil prices in 2014, the number of cases more
than doubled.

Although there was a slight dip in 2015 for the
number of these case from all U.S. District Courts, the number
continued to rise in the Eastern District of Texas, a venue
preferred by patent owners to file suit. Over 40 percent of patent
infringement lawsuits are filed in that court.

Non-practicing Entities

Patent cases have been rising significantly since
the mid-2000s—driven both by a change in law, which requires
companies to be sued separately in patent cases, but mostly because
of cases filed by patent trolls, Morico said. Before the downward
turn in the energy industry, patent trolls were eyeing it. Oil was
at an all-time high, and energy companies were seen as having deep
pockets.

In December 2013, Acacia Research Corp., a
non-practicing entity (NPE), opened an office in Houston to focus
on intellectual property in the energy sector.

Depending on who you speak with, the number of
patent infringement cases filed by NPEs has remained steady, or
fallen slightly, over the last few years.

Some patent cases can be awarded compensation going
back as much as six years—before the collapse of prices—making
patent cases against energy companies still profitable, Meyerhoff
said.

Pivot

Once oil prices began dropping, there was a
pivot—from NPEs trying to capitalize on the money that was being
made in the energy industry to competitor-on-competitor fighting
for market share and survival in a low-priced energy market, Morico
said.

“The fact that these are meaningful cases being
brought, in my view, is a direct consequence of the downturn in the
oil prices,” he said.

1980s Again

The last time Morico saw industry leaders such as
Schlumberger, Halliburton and Baker Hughes sue one another in
patent cases was in the mid-to-late 1980s, another low period for
oil prices.

“Halliburton and Schlumberger really went at it but,
in the ‘90s and 2000s, you didn't really see it, the companies were
pretty much at peace with one another,” Morico said. “Now you're
seeing them, as the market's getting bad, going after one
another.”

What has changed from the 1980s is the advent of
inter partes review proceedings (IPRs) at the U.S. Patent and
Trademark Office. IPRs offer a cheaper, alternative route to going
to court to challenge the validity of patents — and have a
reputation for frequently resulting in invalidity findings.

“Almost in all of these cases, you're seeing IPRs
being filed,” Morico said. “This is causing some of these cases to
go away, or to be stayed. You see the defendants come out swinging
pretty heavily in response to these cases. They have a little more
at their disposal than three or four years ago.”

Long Haul

Patent cases can last a long time: typically
three-to-five years and sometimes longer.

“You usually don't go after a competitor lightly,
and the fact that defendants are being aggressive in their
response, to me, suggests that the industry is not happy that
they've gone down this road,” Morico said.

Business has driven them to file these cases. So in
competitor-on-competitor lawsuits, it's rare to see one just pull
the plug, irrespective of what happens in the market place, Morico
said.

To contact the reporter on this story: Nushin Huq in
Houston at nhuq@bna.com

To contact the editor responsible for this story:
Mike Wilczek in Washington at mwilczek@bna.com

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